Stocks Slightly Lower into Final Hour on Healthy Profit-taking

BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Retail longs and Medical longs. I haven’t traded today, thus leaving the Portfolio 100% net long. The tone of the market is mildly negative as the advance/decline line is lower, sector performance is mixed and volume is above average. Investor anxiety is high. Today’s overall market action is neutral. The VIX is falling 1.44% and is very high at 37.55. The ISE Sentiment Index is below average at 113.0 and the total put/call is above average at .94. Finally, the NYSE Arms has been running high most of the day, hitting 1.79 at its intraday peak, and is currently .93. The Euro Financial Sector Credit Default Swap Index is falling 1.48% today to 153.33 basis points. This index is down from its record March 10th high of 208.75. The North American Investment Grade Credit Default Swap Index is falling 1.21% to 182.99 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is rising 3.31% to 100 basis points. The TED spread is now down 363 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is falling 4.90% to 61.81 basis points. The Libor-OIS spread is falling .45% to 89 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is up 12 basis points to 1.45%, which is down 119 basis points since July 7th. The 10-year TIPS spread bottomed at .65% in October 1998 during the Asian financial crisis and at 1.24% in October 2001 during the technology bubble-bursting meltdown. The 3-month T-Bill is yielding .09%, which is down 4 basis points today. Market-leading stocks are outperforming the major averages substantially today. A number of sectors are rising despite losses in the major averages, with strength seen in financial, rail, gaming, restaurant, reit, drug, energy, defense and coal shares. Tech shares are lagging on profit-taking after recent gains. Overall, it appears as though some healthy sector rotation is taking place. (XLF) has traded well throughout the day, which is always a meangingful broad market positive. The AAII % Bulls fell to 31.82% this week, while the % Bears rose to 38.64%, which is a big positive. I suspect the major averages will trade mixed-to-higher until the uncertainty over the bank stress tests begins to lift. Nikkei futures indicate an +18 open in Japan and DAX futures indicate an +34 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, diminishing economic fear and bargain-hunting.